Credit Union Magazine - January 2009 - (Page 45)

cumstances, including a decline in value, Reg Z requires a written notice to each affected member (Section 226.99(c)(3)) within three business days. The notice must contain reasons for the action and if the credit union requires the member to request reinstatement of credit privileges. uReinstating credit privileges. The Reg Z Commentary makes it clear you must reinstate credit privileges when stated circumstances cease. For example, if you reduced the HELOC credit limit because the borrower lost a job, you must increase it when the borrower gets a new job (assuming the new salary isn’t significantly lower than the previous job). Credit unions are responsible for restoring credit privileges as soon as possible after the condition ceases or when the situation returns to normal. One way to do this is to monitor the credit line or account regularly. Another way is to require members to request reinstatement of credit privileges. However, once the member has requested reinstatement, your credit union immediately must verify that the condition permitting the freeze or credit limit reduction no longer exists. If the condition has returned to normal, then you must reinstate credit privileges. a HELOC and demanding repayment of the outstanding balance (before the plan’s scheduled expiration) only when one of these situations applies: 1. The borrower commits fraud or material misrepresentation (as determined by state law) anytime during the loan process, such as during When you act on a HELOC plan based on a reduction in value, Reg Z doesn’t provide much guidance as to when you must reinstate credit privileges. A “significant decline” no longer should exist when the house value increases enough that, while it still may be less than the original appraised value, more than 50% of the original available equity now exists. It seems at that point you’d have to reinstate the credit privileges. In situations different from those permitting suspension or credit limit reduction, you may terminate the HELOC and demand full payment. uTerminating plans and demanding full payment. Reg Z permits terminating application, draw period, or repayment. 2. The borrower doesn’t meet repayment terms (only if the borrower actually fails to make required payments, not if the borrower sends a payment to the wrong location). 3. The borrower takes action (or inaction) that adversely affects the property pledged as security. For example, the borrower transfers title or sells the property without the credit union’s permission, doesn’t maintain required insurance, doesn’t pay property taxes, permits the filing of a lien that’s senior to the lien the credit union holds, or dies. Other circumstances that could adversely affect the property: It’s taken through eminent domain, or a prior lienholder forecloses. Other than these three situations, credit unions can’t specify in their loan agreements any other situations or conditions permitting HELOC plan termination and demand for full payment. You also may take action short of termination and a demand for full payment. For example, you could suspend further advances, reduce the credit limit, change the payment terms, or require the member to pay a fee. These actions could be temporary or permanent. Considering today’s economy, your credit union should have procedures to monitor and identify higher-risk HELOC accounts and related adverse changes to implement timely preventive action, such as freezing accounts, reducing credit limits, or even terminating accounts. MICHAEL McLAIN is assistant general counsel for the Credit Union National Association. Contact him at 608-231-4185 or at mmclain@ cuna.com. cuna.orgt JANUARY 2009t CREDIT UNION MAGAZINE 45 http://www.cuna.org

Table of Contents Feed for the Digital Edition of Credit Union Magazine - January 2009

Credit Union Magazine - January 2009 Contents On My Way Leading Edge Spotlight President's Perspective Game Plan Washington Insider Wright Stuff Executive Suite Reverse Mortgages Come of Age Six Merger Myths Leading-Edge Lenders TwentyFour/Seven Bankruptcy Compliance Tools of the Trade Trendlines Rates & Ratios Council Corner Shoptalk System Scan Marketplace Branching Out Advertiser Index

Credit Union Magazine - January 2009

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